For the past two years, semiconductor companies have been the big focus for AI investors. There are massive orders of chips needed to power today’s AI programs, with more demand down the line.
However, stocks of leading chipmakers have already had a substantial move. Investors may fare better looking at other constituents of the AI market. That’s especially true for software companies, given that AI is ultimately a software, and that can provide higher margins for investors than hardware.
For instance, software giant Adobe (ADBE) is down 20% over the past year. But growing cloud services and tools for the creation of AI videos could give shares a shot in the arm in the quarters ahead.
Adobe is already delivering on AI-powered software, and earnings jumped 20% last year even as revenues rose by just over 10%.
If Adobe can continue to benefit from its AI tools, the market may be willing to reward investors with a higher PE ratio than its current valuation of 22 times earnings.
Action to take: Investors may like Adobe as an undervalued growth play here. If Adobe can continue to see positive results from its AI rollout, shares could be on track for gains in the quarters ahead.
For traders, the April $485 calls, last trading for about $19.30, could see mid-double-digit returns in the months ahead on a bounce higher for shares.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.